A virtual channel (VC) allocation system is provided. During operation, the system can maintain, at an ingress port of a switch, a set of counters. A respective counter can indicate a number of data units queued at a corresponding egress port for an ingress VC. A data unit can indicate a minimum number of bits needed to form a packet. The system can maintain, at an egress port, an ingress VC indicator indicating that a packet in an egress buffer for an egress VC corresponds to the ingress VC. Upon sending the packet, the system can update a counter based on the ingress VC indicator. The counter can be associated with the egress buffer and the ingress VC. The system can then issue, to a sender device, credits associated with the ingress VC based on a minimum number of available data units indicated by the set of counters.